Sunday, January 31, 2010

Along with a bunch of my fellow Israeli VCs, I was an unknowing subject in an experiment conducted by TheMarker(in Hebrew) over the past week. The idea was to send cold emails to 62 active Israeli venture capitalists and to test their “response times.” They created a fictitious cloud infrastructure start-up called Shadowscale, complete with an Israeli founding team from Checkpoint. The email was made to appeare genuine, and was designed to avoid the typical pitfalls most pitches trip on, such as being too early stage, not having an impressive team, or lacking any customer engagement. In fact, the name of the founder, Yinon Tzuk, seems to have been specially concocted to confuse us with Nir Zuk, an early Checkpoint employee, and now prominent entrepreneur. It was well done, but I would have encouraged TheMarker have created a true web presence including a website on Wix and a LinkedIn profile, which is fairly rudimentary for entrepreneurs.

I am at once both proud and embarrassed to be one of a handful of people who responded within the same day to set up a meeting as a next step. Actually, I happened to have responded within 8 minutes of receiving the email, but they didn’t measure that level of granularity. Although, I wouldn’t be proud of it even if they did, because no professional investor, could be expected to get back to every email within the same day unless an automated email response would be sufficient. I happened to be online at the time, listening in on video conference, so a rapid response was almost a reflex. But I also found it odd that an infrastructure start-up would emerge from stealth to approach VCs for the first time two years after founding. In fact, it was downright extraordinary, and I was convinced I must have been hiding in a cave to have missed a venture in my area of interest created more than 2 years ago.

As clever as it was, TheMarker’s experiment is misleading for entrepreneurs. It creates the wrong expectations for entrepreneurs and sets the wrong bar for measuring a VC’s professionalism. I am not aware of any venture capitalist that would dare promise a same-day response, like Amazon offers next day shipping. In the rare situation, one receives a same day or next day response, one can consider himself lucky(well timed) or at least special(something jumped out). Venture capitalists may pride themselves on being able to listen and provide feedback, but even then, no single VC could ever possibly give attention to every entrepreneur who sends an email out of the blue, let alone on the same day. Most venture capitalists I know travel almost a week a month, have specific areas of interest and are inundated daily with emails from prospective, companies, partners, candidates and service providers. This all might sound shocking to some, but new ventures are not new clients looking to spend their money on our services, quite the contrary! Perhaps if this were the case, we could be tested on our response times, but then again TheMarker didn’t conduct a similar experiment on local accountants or lawyers.

I am not sure who created the impression in the Israeli high tech market that venture capitalists should respond to cold emails, but the TheMarker test now perpetuates this expectation. Everyone knows that the easiest way to get a VC’s attention is to get referred by a mutual acquaintance, be it a fellow entrepreneur or executive, advisor, lawyer, accountant, etc. I am not saying anything new here, and the reasoning is simple. Foremost, it’s a automatic filtering method based on the source and strength of the recommendation. Secondly, if an entrepreneur is to be successful in his venture, he must be extremely resourceful and innovative, and this is the same way he will eventually reach customers, partners and employees (i.e. hopefully not with cold emails). With the large networks each of us has in Israel, the inability for an entrepreneur to find someone in his extended network who has some prior relationship with us is telling. Incidentally, when someone does approach me with an interesting project, but without a third party intro, I generally look them up on LinkedIn to get my bearings and triangulate.

There is however, a more realistic and acceptable expectation which entrepreneurs should have of their venture capitalist, but this is far more difficult to measure with an email ruse. This is the expectation that venture capitalists respond quickly to their own portfolio companies’ requests and needs. In my play book, portfolio always takes precedence over new deals, and this should be reassuring to entrepreneurs considering taking VC money. However, if we are expected to be responsive to our portfolio companies, this will invariably come at the expense of new deals, especially those arriving in the form of a cold email with neither an executive summary nor an email signature with contact details.

We do our job best when we are able to filter quickly and assign a priority to everything, even if it means missing great opportunities (although this is seldom the case with cold emails). I prefer to be judged by those deals I have invested in, and how responsive I am to those entrepreneurs I have truly made a commitment to.

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